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Better Regulations Can Spur Agent Banking in WAEMU

11.04.2018Corinne Riquet, Financial Sector Specialist, CGAP

This blog was originally published on the CGAP website.

The West African Economic and Monetary Union (WAEMU) has taken significant steps toward financial inclusion in recent years. Mobile money has driven much of this progress under the aegis of regulations that make it possible for mobile network operators to offer e-money services and expand their agent networks and the reach of their services. However, WAEMU’s regulations make it difficult for banks and microfinance institutions to expand their own agent networks and contribute fully to financial inclusion. While the number of mobile money accounts and agents in the region roughly doubled between 2014 and 2017 (to 36.4 million and 183,000, respectively), banks and microfinance institutions have lagged behind.

Even in the age of mobile money, these traditional financial institutions have an important role to play in expanding low-income customers’ access to financial services. For example, as Will Cook points out in his recent CGAP blog post, bank accounts in Kenya once again outnumber mobile money accounts – by 30 percent. Alongside partnerships with mobile money providers, a rise in agent banking has contributed to this increase. In 2016, 17 commercial banks developed agent banking and contracted over 40,000 agents. The Central Bank reported that agent banking saw 55.8 million transactions in the first quarter of that year, compared to 10.3 million in the same period the year before. Kenya’s regulators enabled this kind of growth by adopting a risk-based approach when defining the country’s agency banking regulatory framework in 2010 and integrating provisions for consumer protection.

What will it take for WAEMU regulators to similarly unlock the potential of banks and microfinance institutions to drive financial inclusion for the region’s 50 million people living in poverty?

[In November 2017] CGAP published a regulatory diagnostic of digital financial services in Côte d’Ivoire, which has the same agent regulations as the other WAEMU member countries (Benin, Burkina Faso, Guinea-Bissau, Mali, Niger, Senegal and Togo). We found that WAEMU recognizes three types of agents and that the regulations surrounding them contribute to disparities among different types of institutions (banks, nonbank e-money issuers, microfinance institutions, etc.):

  • E-money agents. E-money agents may conduct marketing activities and supply services related to e-money, including account enrollment, cash-in and cash-out and payments. Current regulations provide for a two-tier system of primary agents and subagents (or “distributors” and “subdistributors,” as they are called in the regulation), who act under the responsibility of the e-money issuer. Retailers and other registered businesses, microfinance institutions, the post office and other nonbank financial institutions are permitted to serve as primary agents. These agents may outsource to other registered businesses who act as subagents. These rules have allowed mobile network operators to deploy large agent networks in the eight WAEMU countries.

  • Rapid money transfer agents. Another regulation enables banks, nonbank financial institutions and microfinance institutions to provide over-the-counter transactions, or “rapid fund transfers,” through retail agents called “subagents.” Permitted transactions are limited to real-time transfers that are performed over the counter at an authorized provider or agent and do not involve any bank or e-money account of either the sender or recipient. These providers act under the responsibility of a financial institution and are not allowed to collect funds for deposits for any purpose other than over-the-counter transfers (unless they are microfinance institutions). The best-known of these over-the-counter providers is WARI, which has large networks of subagents in most of the WAEMU countries.

  • Banking agents. Beyond e-money and over-the-counter transfers, the scope for using agents is unclear. The rules that do exist are highly restrictive for banks, and there is no explicit framework for microfinance institutions. Banks are authorized by the banking law and a 2010 instruction from BCEAO (the common central bank for the WAEMU region) to use agents called Intermédiaires en Opérations de Banque (IOBs). An IOB acts under a mandate assigned by a bank, which may include opening accounts and taking deposits. Each IOB is required to obtain approval from the Ministry of Finance, on the advice of BCEAO. It is also subject to fit-and-proper standards – a financial guarantee whose level depends on the nature of the mandate and regular reporting requirements. The IOB model did not arise for the sake of financial inclusion but rather, as a business niche for intermediaries operating within the traditional banking sector comparable to an insurance agency. As a result, since the introduction of these rules in 2010, BCEAO has approved and registered only six IOBs, and two are authorized to just collect deposits.

While regulations on e-money agents have greatly expanded the reach of mobile money, those surrounding agent banking appear too restrictive for the banks and are nonexistent for the microfinance sector. This creates a competitive disadvantage for traditional financial services providers to make use of digital channels in expanding their reach and relevance. Uniform, or at least harmonized, rules across the board for e-money, over-the-counter transactions and banking agents would be a big step in the right direction. Any new framework should provide a comprehensive and proportionate set of risk-based rules on due diligence, supervision, internal control and subagents. And special consideration should be given to replacing or revising IOB rules to support a more flexible agent banking approach.

More harmonized rules around agent networks would ensure a level playing field for all financial services providers to seize the opportunities presented by digitization to reduce cost, increase scale and expand financial inclusion.

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About the Author

Corinne Riquet is an independent microfinance consultant and has worked in several African countries since 2001. She has advised a range of clients, especially MFIs and funders on organizational audit practices, business plan development, appraisals, designing financial service projects in rural areas, and evaluating and defining national microfinance strategies. Since 2002, she has been a resource person for CGAP's MFI Capacity Building Program in Francophone Africa (CAPAF). At CGAP, she has participated in several train-the-trainer seminars in the capacity of Supervisor. Corinne, a French national,  has been living in Côte d'Ivoire for the past 24 years. She is bilingual (French and English) and holds a Master's degree in Developmental Economics from CERDI, University of Clermont Ferrand, France.

Are Banks Necessary? And other Questions

03.04.2018Tokunboh Ishmael, Co-Founder and Managing Director, Alitheia Identity

This blog was originally published on the Medium Website.

Asking this question will no doubt raise eyebrows and much consternation, especially in Nigeria where Alitheia Identity invests in financial services and financial technology aka Fintech. The question is meant to shock banks to get off the fence and into action.

Bill Gates is famously reported by the Economist to have said ‘Banking is necessary, banks are not.’ This quote resonates with my vision of retail banking in a ‘future’ that seems to have already arrived. The retail bank of the future will be ubiquitous, contextual, social and invisible. It will provide personalised services seamlessly/invisibly, much in the same seamless way that Uber receives payments from customers today. Invisible payments will become the norm where customers will walk into certain locations (off and on-line) select or be prompted to enjoy offers on products and services, and have payments automatically deducted. In this regard, the retail banks will be entities that provide non-banking services with embedded banking services. It will be wherever and whenever. Providing payment, savings and credit services in context with the customers’ needs, wants, behaviour and footprint in the driving seat. Amazon has led the foray into this ‘future’ by opening its first checkout-free store.

Currently, entities that are at the vanguard of developing these invisible payments are not traditional banks. They are technology companies such as Amazon and Google. It is widely believed that banks have not been quick to push these technologies for fear of cannibalising their credit and debit card products. Although, this may seem to spell doom for incumbent banks as these seamless technologies enjoy wide adoption, in my view it is unlikely that entities like Google and Amazon will want to completely take over the business of banking, and its attendant regulatory and compliance headaches. Instead they may wish to partner and offer their technologies within a financial services ecosystem. Such an ecosystem would have the retail bank of the future as a platform with incumbent banks at the core providing banking ‘plumbing’ as a service and partnering with Fintech or technology challengers to provide the personalised and contextual experience that customers have come to expect.

Question: Are Nigerian banks ready or preparing for this new reality — a shift from the traditional integrated end-to-end model to a modular plug-and-play model?

It is no surprise that technology shifts will be at the heart of retail banking’s transformation over the next ten years just as it has been over the past ten when the word and concept of digital banking began to gain prominence. However, to date, the use of digital technologies has been majorly focused on automating mundane tasks, and providing shiny new interfaces on old dated banking legacy systems. The retail bank of the future will not merely layer digital interfaces on to existing systems, it will have a digital core upon which it will provide a rich customer experience. To achieve this, software developers, data scientists and design professionals will play a larger role in the management teams and boards of the banks of the future. Their skills will be essential to shift from the emphasis on automating processes to outcomes that delight with a greater focus on customer needs based on insights from treasure troves of customer data.

Question: Have banks started broadening their employee engagement strategies to attract/keep the purveyors of these new skills?

Banks that are still focused on shiny new interfaces and lacking the requisite design/data skills are not at the start line let alone in the race for retail customer growth and stickiness.

The main technologies that will play a key role in the development of the retail bank of the future are Deep Learning and Artificial Intelligence, which will enable the mining of customer data (from both non-financial and financial entities) to set rules based on insights from customer preferences and behaviours. This in turn will enable providers to make informed recommendations for products and services and take pre-determined actions with customer permissions. The winning ‘banks’ in this new world will intelligently use all the information that they have about customers to ‘make life possible and easier’…possible to employ financial services to live life to its full potential, in whatever way the customer chooses to define ‘full’. Smart banks will leverage this data and a customer’s social capital to determine its risk appetite for that customer and how best to use the customer’s social network to market its services. In other words, demand and supply for financial services will emanate from and be fuelled by a customer’s relationship with a non-financial entity and the customer’s social interactions.

On the customer side, the pervasive use of ‘wearable technologies’ and the ‘Internet of Things’ will literally turn the customer and his environment into the ‘branch’ for a personalised and contextual service. The implication of this will be a re-imagining of bank branches and their function. This is already playing out with the reduction of bank branches globally. That said, bank branches will not be completely eliminated but redesigned as places that attract customers to experience their ‘bank’ in a new and modern way.

Question: Are Banks Fintech ready? Are we all ready for this new reality?

The move is inevitable, standing still is actually walking backwards and no one can afford to do that.

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About the Author

Tokunboh Ishmael is an accomplished and experienced private equity investor with a proven track record. She is Managing Director and co-founder of Alitheia Capital (www.thealitheia.com) In 2015, she co-founded Alitheia Identity (www.alitheiaidentity.com) a fund manager that invests in high growth small and medium enterprises (SMEs) with significant opportunity to grow profitably and deliver above-market returns. The firm does this through a proactive approach to funding businesses led by female founders and co-founders towards ensuring greater participation of women at at all levels from boardroom to factory floor. Tokunboh is a CFA Charterholder, corporate financier and M&A banker historically having worked on over $5.6 billion M&A deals across the US, UK and Africa.

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LATEST POSTS

Better Regulations Can Spur Agent Banking in WAEMUCorinne Riquet, Financial Sector Specialist, CGAP
Are Banks Necessary? And other QuestionsTokunboh Ishmael, Co-Founder and Managing Director, Alitheia Identity
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